Striking writers in talks to launch Web start-ups

By By Joseph Menn

Dec 17, 2007 | 12:00 AM

Dozens of striking film and TV writers are negotiating with venture capitalists to set up companies that would bypass the Hollywood studio system and reach consumers with video entertainment on the Web.

At least seven groups, composed of members of the striking Writers Guild of America, are planning to form Internet-based businesses that, if successful, could create an alternative economic model to the one at the heart of the walkout, now in its seventh week.

Three of the groups are working on ventures that would function much like United Artists, the production company created 80 years ago by Charlie Chaplin and other top stars who wanted to break free from the studios.

"It's in development and rapidly incubating," said Aaron Mendelsohn, a guild board member and co-creator of the "Air Bud" movies.

Writers walked off their jobs Nov. 5, virtually shutting down television production and throwing 10,000 people out of work. The Writers Guild is fighting the major studios over how much their members are paid when their work is distributed online.

Silicon Valley investors historically have been averse to backing entertainment start-ups, believing that such efforts were less likely to generate huge paydays than technology companies. But they began considering a broader range of entertainment investments after observing the enormous sums paid for popular Web video companies, including the $1.65 billion that Google Inc. plunked down last year for YouTube, a site where users post their own clips.

They also have been emboldened by major advertisers, which prefer supporting professionally created Web entertainment to backing user-generated content on sites such as MySpace that can be in poor taste.

"I'm 100% confident that you will see some companies get formed," said Todd Dagres, a Boston-based venture capitalist who has been flying to L.A. and meeting with top writers for weeks. "People have made up their minds."

What effect this would have on the strike is unclear. So far, the percentage of the guild's 10,000 striking writers who are in discussions with venture capitalists appears to be small. Any deal of this kind, however, could put pressure on the studios and help the writers' public relations campaign. Writers who are talking to venture investors say the studios would suffer a brain drain if high-profile talents received outside funding and were no longer beholden to them.

Mendelsohn and others said they would stick with their ventures after the strike ended.

The Alliance of Motion Picture and Television Producers, which represents the studios in negotiations, declined to comment on the issue, as did the Writers Guild.

Already this year, a handful of sites have received venture backing, including FunnyorDie.com, co-founded by comedic actor Will Ferrell, and MyDamnChannel.com, launched by former MTV executive Rob Barnett.

MyDamnChannel pays for the production of original content by a handful of artists and splits ad revenue with them.

Under the Hollywood system, writers, in most cases, are employed by the studios to create and manage TV shows and movies. The studios own the copyrights and pay writers for the initial use of the material and a small percentage of the licensing fees they collect when the work is rerun or sold on DVD.

With television viewership and DVD revenue declining in the digital age, writers have sought bigger rewards when their work is distributed online. There have been isolated successes, such as Viacom Inc.'s agreement in August to give the co-creators of "South Park" 50% of a new online entertainment venture based on the TV program.

For the most part, however, the studios have argued that Web economics are still too uncertain for them to give a larger share of the proceeds to writers.

Most writers who have been talking with venture capitalists declined to discuss their plans on the record, saying it was too early to provide details. Yet an array of strategies have emerged from interviews with writers, investors and others involved in the process.

The groups modeled after United Artists (which eventually was bought by Metro-Goldwyn-Mayer Inc. and recently was revived with the help of Tom Cruise) envision creating and distributing programming for the Web and recouping their investments by selling rights to the most successful properties to TV networks or movie companies.

The initiative would change the career paths of many writers. They would be leaving well-paying jobs in television and film for the Internet, which often has been viewed as a steppingstone to Hollywood.

Some high-profile writers and technologists are trying to create a collaborative studio they hope would be officially sanctioned by the Writers Guild. They want to build on the popularity of strike-related videos on the guild-inspired blog UnitedHollywood, YouTube and elsewhere.

"We are uniquely positioned to take our case and new business model directly to consumers," said a leader of that effort, the primary writer on a TV show that was a blockbuster a decade ago. "This will be the officially sanctioned Hollywood union portal."

Others seek to create a privately owned studio that would develop episodic series for the Web. The studio could turn a profit even without cutting movie or TV deals if it developed an audience coveted by advertisers.

Dagres said he had met with one group focused on developing material for potential theatrical distribution and another concentrating on Web series.

At least two additional groups plan to create companies that would distribute material on Facebook or other online gathering places where they might quickly become popular.

Facebook director Jim Breyer, a partner at Silicon Valley venture firm Accel Partners, said he was weighing deals that would rely on Facebook's platform. "It is likely we will make investments in Los Angeles screenwriter/content-oriented companies in 2008," he said.

Accel and Dagres' Spark Capital are among four venture firms that have been meeting with writers since the strike began. Hedge funds are also interested in investing, writers who have met with them said.

The screenwriters have been consulting with writer-entrepreneurs who say they earn their living from their work online by running low-cost operations.

"I basically give them a 'Come on in, the water's grand,' " said news website owner Andrew Breitbart, the coauthor of a 2004 book on celebrity culture who worked on the Drudge Report and Huffington Post websites.

"There is no one answer about what works," Breitbart said. "The great thing about online is you can adapt to the changes."

Another common stop on the educational tour is Kent Nichols, co-creator of the profitable "Ask a Ninja" franchise, a two-man Web operation.

His advice is, "You have to think like Jerry Bruckheimer," the television and movie producer who keeps ownership of everything he makes and tries to wring profit from every revenue stream, including merchandise, advertising and licensing.

Even before the strike, changes were afoot that made the recent ventures possible.

The spread of broadband access has allowed more Americans to watch video online. That has prompted the big entertainment companies and a host of others to put more clips on the Web, which in turn has brought in more viewers.

Among broadband users, the proportion who watch videos at least weekly has risen to 61% from 45% a year ago, market research firm Horowitz Associates Inc. reported this month.

"I think it's a great opportunity," said Silicon Valley investor Gus Tai of Trinity Ventures. "This trend started prior to the strike and is only accelerating."

Some of the writers who are drafting business plans said that if the strike had lasted only a week, they would have just gone back to work. But now they've had time to plot strategy -- and to realize that a prolonged strike with reruns and reality shows filling the airwaves might allow them to grab a wandering audience.

"The companies are pushing us into the embrace of people that are going to cut them out of the loop," marveled one show runner who is tracking the start-up trend but not participating.

"We are one Connecticut hedge-fund checkbook, one Silicon Valley server farm and two creators away from having channels on YouTube, where the studios don't own anything."